Feds slash ethanol mandate for gasoline in nod to oil industry

The Environmental Protection Agency on Friday sided with oil companies and said for the first time that less renewable fuel should be blended into the nation’s gasoline supply, adding ammunition to an intensifying debate over biofuels.

The move, a dramatic shift for the agency, is likely to increase calls for wholesale changes to renewable fuel requirements, with some groups calling for the mandates to be eliminated altogether.

The agency’s proposal would require that 15.2 billion gallons of renewable fuels be mixed into gasoline and diesel next year, an 8.1 percent drop from this year’s requirement.

It was the first time the agency has proposed lowering its annual target for renewable fuels since the government began mandating renewable blends in 2009. The action delivered a blow to corn farmers and producers of corn-based ethanol, a pure alcohol that makes up most of the nation’s renewable motor fuel. The agency will release its final mandates next year after a public comment period.

“It reflects an ‘all of the above, except biofuels’ energy strategy,” said a statement from the Fuels America coalition, playing on the Obama administration’s description of its “all of the above” energy policy that includes fossil and renewable fuels.

Bob Dinneen, CEO of the Renewable Fuels Association, said oil companies and refiners have attempted to block the expansion of renewable fuel use by preventing stations from dispensing gasoline with higher ethanol blends, a charge the oil industry denies. He said regulators had caved to oil industry pressure in proposing a lower ethanol mandate.

“It turns the nation’s renewable fuel policy over to the oil companies because now they get to decide how much renewable fuel is used based on how much infrastructure they are willing to turn over to renewable fuels,” Dinneen said. “It is a complete reversal of what the (Renewable Fuel Standard) was intended to do.”

Changing landscape

The proposal reflected a changing energy landscape that is far removed from 2007, when Congress finalized the standard and envisioned that fuels produced from corn and other plants would help break the nation’s addiction to foreign oil.

American’s gasoline consumption peaked that year and has been on the decline ever since, largely because of improved vehicle fuel efficiency and the economic downturn that began about a year later.

But the escalating renewable fuel requirement forced refiners to buy more ethanol and blend it into a shrinking pool of gasoline, raising ethanol and corn prices.

When refiners had to pay more for ethanol — or had to buy ethanol credits when they fell short of their mandated volumes — they passed higher costs to consumers, said Patrick DeHaan, senior petroleum analyst for consumer gasoline price website GasBuddy.

Prices of ethanol and ethanol credits drove up the price of gasoline, DeHaan said. Americans shouldn’t have to pay extra, he said, for a standard he doesn’t believe was thought out well.

Environmentalists also have been lukewarm on the benefits of corn-based ethanol, raising questions about its effects on land, food prices and water availability.

Call for repeal

In proposing to lower the 2014 volume requirement, the EPA acknowledged that if it stayed on the track established when the law took effect, refiners would not be able to use all the ethanol it mandated.

As required volumes of ethanol rose while gasoline production fell, refiners approached what has become known as the “blend wall” — the point at which using all the required ethanol would have pushed the mix above 10 percent.

Jack Gerard, CEO of the American Petroleum Institute, said the EPA’s action recognized that “the blend wall is a dangerous reality and that breaching it would bring serious impacts on America’s fuel supply.”

“Ultimately, Congress must protect consumers by repealing this outdated and unworkable program,” Gerard said in a conference call with reporters Friday.

Despite the expected pressure from the oil industry to change or eliminate the Renewable Fuel Standard, mandates are likely to remain in place, said Ken Medlock, senior director of the Center for Energy Studies at Rice University’s Baker Institute.

“I don’t foresee the whole thing being repealed,” Medlock said. “I actually think it will be something along the lines of sticking with the status quo, recognizing that the blend wall is sort of an upper bound.”

Hitting the blend wall

Here’s what’s building the “E10 blend wall” that led the Environmental Protection Agency to propose reducing the volume of renewables required in U.S. fuel supplies:

Most gasoline in the United States contains up to 10 percent ethanol — a pure form of alcohol usually derived from corn. Various interest groups debate whether engines can run properly on higher ethanol blends, and few gasoline stations sell them.

The Energy Independence and Security Act of 2007 set a Renewable Fuel Standard requiring refiners to blend a specified volume of renewables in the U.S. fuel supply, starting in 2009 and escalating each year, in order to reduce dependence on fossil fuel.

Since 2007, improved fuel efficiency has reduced gasoline demand as the renewable requirement rose, approaching the point where it would exceed 10 percent of the total supply—the E10 wall.

A dump wagon adds freshly gathered corn cobs to a pile on a farm near Hurley, S.D. The first trickle of fuels made from agricultural waste, including corn cobs, is finally winding its way into the nation's energy supply, after years of broken promises and hype promoting a next-generation fuel source cleaner than oil. As refineries produce this so-called cellulosic fuel, it has become clear, even to the industry's allies, that the benefits remain, as ever, years away. (AP Photo/Dirk Lammers, File) less

A dump wagon adds freshly gathered corn cobs to a pile on a farm near Hurley, S.D. The first trickle of fuels made from agricultural waste, including corn cobs, is finally winding its way into the nation's ... more

Photo: DIRK LAMMERS / ap

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An ethanol plant stands next to a cornfield near Nevada, Iowa. When President George W. Bush signed a law in 2007 requiring oil companies to add billions of gallons of ethanol to their gasoline each year, he predicted it would make the country "stronger, cleaner and more secure." But the ethanol era has proven far more damaging to the environment than politicians promised and much worse than the government admits today. Government mandates to increase ethanol production have helped drive up corn prices leading to marginal land being farmed to produce the crop. less

An ethanol plant stands next to a cornfield near Nevada, Iowa. When President George W. Bush signed a law in 2007 requiring oil companies to add billions of gallons of ethanol to their gasoline each year, he ... more

Photo: Charlie Riedel / AP

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A motorist fills up with gasoline containing ethanol in Des Moines. When President George W. Bush signed a law in 2007 requiring oil companies to add billions of gallons of ethanol to their gasoline each year, he predicted it would make the country "stronger, cleaner and more secure." But the ethanol era has proven far more damaging to the environment than politicians promised and much worse than the government admits today. less

A motorist fills up with gasoline containing ethanol in Des Moines. When President George W. Bush signed a law in 2007 requiring oil companies to add billions of gallons of ethanol to their gasoline each year, ... more

Photo: Charlie Riedel / AP

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Algae covers the surface of Corydon Lake in Corydon, Iowa. The ethanol mandate has contributed to millions of acres of new row crops being planted and more fertilizer use. The fertilizer flows downstream, polluting lakes and causing algal blooms. less

Algae covers the surface of Corydon Lake in Corydon, Iowa. The ethanol mandate has contributed to millions of acres of new row crops being planted and more fertilizer use. The fertilizer flows downstream, ... more

Photo: Charlie Riedel / AP

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Environmentalist Craig Cox looks at a corn field near Ames, Iowa. The governments predictions of ethanols benefits have proven so inaccurate that independent scientists question whether it will ever achieve its sole environmental goal: reducing greenhouse gases. That makes the hidden costs even more significant. "This is an ecological disaster," said Cox, with the Environmental Working Group, a natural ally of the president that, like others, finds itself at odds with the White House. Higher corn prices due to demand for the crop to produce ethanol has led to more acres planted and stream pollution from fertilizer runoff. less

Environmentalist Craig Cox looks at a corn field near Ames, Iowa. The governments predictions of ethanols benefits have proven so inaccurate that independent scientists question whether it will ever ... more

Photo: Charlie Riedel / AP

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Des Moines water works lab technician Bill Blubaugh takes a water sample from the Des Moines River in Des Moines. A mandate to increase ethanol production has resulted in millions of acres of new row crops being planted, in some cases on highly erodible land, helping to increase nitrate pollution in municipal water supplies like Des Moines. less

Des Moines water works lab technician Bill Blubaugh takes a water sample from the Des Moines River in Des Moines. A mandate to increase ethanol production has resulted in millions of acres of new row crops ... more

Photo: Charlie Riedel / AP

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Des Moines Water Works lab technician Bill Blubaugh takes a water sample from the Raccoon River in Des Moines. The water works has faced high nitrate levels for many years in the Des Moines and Raccoon Rivers, which supply drinking water to 500,000 people and the mandate to increase ethanol production, with millions of acres of new row crops being planted, is helping to increase nitrate pollution in municipal water supplies like Des Moines. less

Des Moines Water Works lab technician Bill Blubaugh takes a water sample from the Raccoon River in Des Moines. The water works has faced high nitrate levels for many years in the Des Moines and Raccoon Rivers, ... more

Photo: Charlie Riedel / AP

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Des Moines water works lab supervisor Jeff Mitchell prepares a water sample for nitrate testing in Des Moines. A mandate to increase ethanol production has resulted in millions of acres of new row crops being planted, in some cases on highly erodible land, helping to increase nitrate pollution in municipal water supplies like Des Moines. less

Des Moines water works lab supervisor Jeff Mitchell prepares a water sample for nitrate testing in Des Moines. A mandate to increase ethanol production has resulted in millions of acres of new row crops being ... more

Photo: Charlie Riedel / AP

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Erosion is seen in a cornfield that was recently converted from pasture near Lineville, Iowa. Five million acres of conservation land has been converted to row crops since Obama's ethanol mandate, leading to erosion and pollution from fertilizer runoff. less

Erosion is seen in a cornfield that was recently converted from pasture near Lineville, Iowa. Five million acres of conservation land has been converted to row crops since Obama's ethanol mandate, leading to ... more

Photo: Charlie Riedel / AP

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Leroy Perkins stands in his field of grass which is part of the Conservation Reserve Program near Corydon, Iowa. Perkins must decide whether to leave the highly erodible land in grass or break ground for corn production to cash in on high prices caused in part by the ethanol mandate. less

Leroy Perkins stands in his field of grass which is part of the Conservation Reserve Program near Corydon, Iowa. Perkins must decide whether to leave the highly erodible land in grass or break ground for corn ... more

Photo: Charlie Riedel / AP

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The Sturgeon Cemetery near Sewal, Iowa stands as an island among corn plants. Forty-four percent of the nation's corn crop in 2012 was used for fuel, about twice the rate seen in 2006, according to the Department of Agriculture. With ethanol production helping to drive up the price of corn and enticing farmers to plant on more and more acres, the cemetery is now surrounded by cornfields with only a primitive trail for access. less

The Sturgeon Cemetery near Sewal, Iowa stands as an island among corn plants. Forty-four percent of the nation's corn crop in 2012 was used for fuel, about twice the rate seen in 2006, according to the ... more

Photo: Charlie Riedel / AP

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Erosion is seen in field of soybeans that was recently converted to row crops near Corydon, Iowa. Millions of acres of row crops have been planted on former conservation land because of higher corn prices stemming from a mandate to produce more ethanol. But the ethanol era has proven far more damaging to the environment than politicians promised and much worse than the government admits today. less

Erosion is seen in field of soybeans that was recently converted to row crops near Corydon, Iowa. Millions of acres of row crops have been planted on former conservation land because of higher corn prices ... more

Photo: Charlie Riedel / AP

Image 13 of 21

Wayne County board of supervisors member Billy Joe Alley looks over an eroded cornfield that was recently converted from pasture to row crops near Lineville, Iowa. The once grassy, hilly landscape is made up of fragile soil that, unlike the rest of the state, is poorly suited for corn. "Theyre raping the land, said Alley. Five million acres of conservation land has been converted to row crops since Obama's ethanol mandate, leading to erosion and pollution from fertilizer runoff. less

Wayne County board of supervisors member Billy Joe Alley looks over an eroded cornfield that was recently converted from pasture to row crops near Lineville, Iowa. The once grassy, hilly landscape is made up ... more

Photo: Charlie Riedel / AP

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Erosion is seen in field of soybeans that was recently converted to row crops near Corydon, Iowa. The barn is also slated to be demolished to allow more acreage to be planted. Government mandates to increase ethanol production have helped drive up corn prices leading to marginal land being farmed to produce the crop. less

Erosion is seen in field of soybeans that was recently converted to row crops near Corydon, Iowa. The barn is also slated to be demolished to allow more acreage to be planted. Government mandates to increase ... more

Photo: Charlie Riedel / AP

Image 15 of 21

Erosion is seen in a cornfield that was recently converted from pasture near Lineville, Iowa. Five million acres of conservation land has been converted to row crops since President Barack Obama's ethanol mandate, leading to erosion and pollution from fertilizer runoff. In 2012, 44 percent of the nation's corn crop was used for fuel, about twice the rate seen in 2006, according to the Department of Agriculture. less

Erosion is seen in a cornfield that was recently converted from pasture near Lineville, Iowa. Five million acres of conservation land has been converted to row crops since President Barack Obama's ethanol ... more

Photo: Charlie Riedel / AP

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A plant that produces ethanol is next to a cornfield near Coon Rapids, Iowa. Government mandates to increase ethanol production have helped drive up corn prices leading to marginal land being farmed to produce the crop. In 2012, 44 percent of the nation's corn crop was used for fuel, about twice the rate seen in 2006, according to the Department of Agriculture. less

A plant that produces ethanol is next to a cornfield near Coon Rapids, Iowa. Government mandates to increase ethanol production have helped drive up corn prices leading to marginal land being farmed to produce ... more

Photo: Charlie Riedel / AP

Image 17 of 21

Erosion is seen in field of soybeans that was recently converted to row crops near Corydon, Iowa. The barn is the distance is also slated to be demolished to allow more acreage to be planted. When President George W. Bush signed a law in 2007 requiring oil companies to add billions of gallons of ethanol to their gasoline each year, he predicted it would make the country "stronger, cleaner and more secure." But the ethanol era has proven far more damaging to the environment than politicians promised and much worse than the government admits today. less

Erosion is seen in field of soybeans that was recently converted to row crops near Corydon, Iowa. The barn is the distance is also slated to be demolished to allow more acreage to be planted. When President ... more

Photo: Charlie Riedel / AP

Image 18 of 21

Leroy Perkins stands in his field of grass which is part of the Conservation Reserve Program near Corydon, Iowa. Perkins must make a decision to either leave the highly erodible field in grass or break ground to plant corn which is at high prices in part because of the ethanol mandate. less

Leroy Perkins stands in his field of grass which is part of the Conservation Reserve Program near Corydon, Iowa. Perkins must make a decision to either leave the highly erodible field in grass or break ground ... more

Photo: Charlie Riedel / AP

Image 19 of 21

The Sturgeon Cemetery near Sewal, Iowa stands as an island among corn plants. With ethanol production helping to drive up the price of corn and enticing farmers to plant on more and more acres, the cemetery is now surrounded by cornfields with only a primitive trail for access. less

The Sturgeon Cemetery near Sewal, Iowa stands as an island among corn plants. With ethanol production helping to drive up the price of corn and enticing farmers to plant on more and more acres, the cemetery is ... more

Photo: Charlie Riedel / AP

Image 20 of 21

Des Moines Waterworks CEO and general manager Bill Stowe talks about dealing with high nitrate levels in the city's water supply in Des Moines. A mandate to increase ethanol production has resulted in millions of acres of new row crops being planted, in some cases on highly erodible land, helping to increase nitrate pollution in municipal water supplies like Des Moines. less

Des Moines Waterworks CEO and general manager Bill Stowe talks about dealing with high nitrate levels in the city's water supply in Des Moines. A mandate to increase ethanol production has resulted in millions ... more